COMMODITIES: Time for Oil Negotiations at WTO, Experts say

By Estrella Gutiérrez Reprint | | Print |

Estrella Gutierrez

CARACAS, Oct 25 1998 (IPS) - Oil has never formed part of multilateral trade accords, but experts are starting to suggest that it is time the commodity is negotiated within the WTO and as part of a proposed Free Trade Area of the Americas (FTAA).

The special treatment given to petroleum due to its strategic role “has meant the oil trade has not benefited from the liberalisation of other sectors,” said Venezuela’s Miguel Rodriguez Mendoza.

Rodriguez said it was time to modify that situation, because business in oil was increasingly working like trade in other commodities, with fluctuations in trading and a very active futures market.

The specialist in trade negotiations was speaking at an International Forum on Energy and Integration which took place last week in the Venezuelan capital. It was attended by ministers and other public offials, academics and members of the business community from throughout the Americas.

Rodriguez, a former Venezuelan energy minister, is now a professor at Georgetown University in Washington and an adviser to Latin American governments and companies on trade issues.

The expert also worked at the Organisation of American States (OAS) as coordinator of preparations for the negotiations on the creation of an FTAA by the year 2005. The talks were formally launched in April in Santiago, and the first round of discussions ended Tuesday in Miami.

The exclusion of oil from the Uruguay Round (1986-94) of negotiations of the General Agreement on Tariffs and Trade – the precursor of the World Trade Organisation (WTO) – meant that access to the large markets for crude oil and its derivatives was inhibited by the same tariff and non-tariff barriers as in the years prior to the trade liberalisation process.

The United States – the world’s biggest consumer of oil – and Japan have maintained the same taxes on oil imports since the Uruguay Round, while the European Union slightly lowered the prices of derivatives.

Other countries in the Americas have also kept a number of tariff and other barriers to market access for crude oil and its derivatives. Chile charges an 11-percent duty on both, Mexico 10 and 7.3 percent, and Brazil 7.0 and 5.5 percent.

It is increasingly clear that both producers and end users would benefit if oil stopped being left out of understandings reached by the globalised economy, international consultant Wolf Petzall underscored.

As an example, the academic cited the case of Germany, where a barrel of oil – 159 litres – costs the consumer 120 dollars, of which the producer only sees 10 to 13 dollars, while the German government rakes in more than 70 dollars. Through duties and taxes, oil consumption contributes 15 to 16 percent of the German budget, siad Petzall.

In the United States, the final price of a barrel of oil is around 42 dollars, most of which also remains in the hands of the consumer country.

Petzall said that situation was “not consistent with a global focus for trade of a non-renewable resource” for producers.

Rodriguez commented that another element that led to oil’s exclusion from the General Agreement of Trade and Tariffs (GATT) and its successor, the WTO – besides its strategic nature – was the fact that the big traditional exporters were not admitted to those forums until well into the 1980s.

Today oil producer countries sit on the WTO or are negotiating their admission, such as Saudi Arabia, while the body addresses specific aspects of the oil business, such as the link between trade and the environment, investment, government procurement, restrictions on production and subsidies.

The inclusion of oil in the WTO would allow improved market access in terms of tariffs and other barriers, the elimination of or upper limits on taxes paid by the consumer and of measures running counter to the interests of producers, and the use of multilateral dispute resolution mechanisms.

In the case of the recently opened negotiations on freer trade in the Americas, attempts will be made to obtain preferential access to the regional market which, along with Asia, is seen as the fastest-growing energy market in the next quarter century.

The latest estimates, which take into account the impact of the Asian crisis, indicate that consumption in the Americas will rise to 40 million barrels a day by the year 2020, compared to 25 million in 1995, and that the fastest growth will be seen in Latin America, where demand will almost triple.

According to Rodriguez, the American continent is very complementary in energy and will continue to be so although some changes are expected among oil exporters. While Venezuela will maintain its supremacy, Mexico’s role will shrink, and the weight of Argentina and Colombia will grow.

Argentina, Venezuela and Chile illustrate how freer trade boosts access for oil, Rodriguez told IPS.

In 1993, Venezuela agreed to exclude oil from its free trade agreement with Chile, due to the insistence of Chilean negotiators that oil purchases would continue as before and that the state coffers needed the duties on oil imports.

In the accord granting Chile associate status in the Southern Cone Common Market (Mercosur – Argentina, Brazil, Paraguay and Uruguay) in 1996, Argentina pressed for the inclusion of oil. The result was that the flow of Venezuelan oil to Chile did not grow, while Argentine exports to that country “were petrolised,” in the words of Rodriguez.

Negotiations on oil within the FTAA would provide preferential and sure access to markets in the Americas, where today Canada imports only 10 percent of its needs from producers in the hemisphere, while the biggest U.S. supplier is Saudi Arabia, followed by Venezuela and Mexico.

Rodriguez said he was confident that if a fight was waged, there would be no obstacles to incorporating a chapter on oil and energy in the FTAA negotiations.

He pointed out that each country or bloc had successfully pressed for the inclusion of their special interests, as the Southern Cone did with agriculture, Washington with government procurements or the Caribbean with small economies.

For countries whose big foreign exchange earner – in the foreseeable future – will be oil, such as Venezuela and Trinidad and Tobago, or nations where oil will assume a growing weight in the export sector, preferential access is crucial, in exchange for preferential conditions they can offer for other products in their own markets, said Rodriguez.